According to Alan Kohler, the Morrison Government will seek to lift the 0.06% levy on the major Australian banks as part of a pre-election mini-Budget:
Since the levy was first introduced by Scott Morrison in the May 2017 budget… the banks have put forward a solid case to be whacked again. It’s been a long 18 months for them, including the best part of nine months being bashed up in the royal commission.
The UK bank levy started in 2011 as 0.075 per cent on short term liabilities and 0.038 per cent on long term liabilities and was increased nine times to 0.21 and 0.105 per cent by 2015, before the UK Government started a gradual reduction in favour of an 8 per cent income tax surcharge – on the banks.
The Morrison government could either just increase the levy, widen it beyond the riskier banks’ liabilities like commercial paper and certificates of deposit, go beyond the Big Four plus Macquarie or even replace it with an income tax surcharge, as the UK is doing.
The least likely option in my view is that the banks are let off. They are now the most pluckable geese in the taxation farmyard, and the banking royal commission, so steadfastly resisted by the Coalition for so long, could turn out to be a budget saviour.
Actually it might be a good idea for the government to announce an increase in the bank levy quick smart to make sure they get in before the ALP does.
The Productivity Commission’s (PC) final report on Competition in the Australian Financial System explicitly recommended that Australia’s banks “pay for any support they receive from taxpayers via the Australian government”. Therefore, the 0.06% levy on the liabilities of the Big Four banks and Macquarie should be lifted.
The major banks benefit from an implicit guarantee from the taxpayer, which the RBA estimated is worth between 20 and 40 basis points a year, or more than $5 billion. This guarantee is why the big banks receive a three notch ratings upgrade on the smaller banks, who are not considered to be government-guaranteed.
The current bank levy ensures that the major banks will give back only 0.06% of this subsidy, or $6.2 billion over a four year period ($1.55 billion a year). Thus, the major banks are still ahead each year by up to $3.5 billion.
When you or I take-out insurance, we are required to pay. So should the banks. The bank levy is efficient precisely because it helps to internalise part of the cost of the Government’s support.
Raising the bank levy, therefore, is good policy and a no-brainer.
